The model act defines agent as "an individual, partnership, or corporation appointed by an insurer to solicit applications for a policy of insurance or to negotiate a policy of insurance on its behalf." A broker is "any individual, partnership, or corporation who, for compensation, and not being a licensed agent for the company in which a policy of insurance is placed, acts or aids in any manner in negotiating contracts for insurance or placing risks or effecting insurance for a party other than himself or itself."

The distinction of the broker relationship in these statutes is largely eliminated by insurance industry practice, which generally requires that, regardless of the producer�s license, each producer must be separately licensed by each insurer that he or she represents as that company�s agent.

The model act also defines the different relationships that, depending on whether the producer is an agent or broker, are created between producers, insureds, and insurers. The act provides as follows:

A few states�Texas, for example�have a special category of licenses that are generally referred to as insurance counselor licenses. These licenses normally permit people to give advice on life insurance products, to place insurance on behalf of applicants, and to charge fees for the services they render. Such licensees, however, are usually not permitted to accept commissions for the sale of insurance policies.

As you will see, these statutes are rarely determinative of agents� and brokers� rights and responsibilities. In American law the titles used by insurance producers are less important than the facts and circumstances surrounding their relations with their clients. Brokers are usually agents of the insurer for purposes of delivering the policy and collecting the first premium.

Lawmakers and regulators have struggled for years to find an effective means to regulate financial planners. One of the key reasons for the problem is an acknowledged inability to define the term financial planner. It is difficult to regulate what cannot be defined. Therefore as a general rule, financial planners are regulated under the laws governing investment advisers, rather than as a separate profession.

Financial planners who meet the definition of investment adviser under the Investment Advisers Act of 1940 must register with the Securities and Exchange Commission. States have enacted similar requirements under their "blue sky" or securities laws. In addition, some states have expanded their definition of investment adviser to include those individuals who hold themselves out as financial planners.

These holding-out provisions can be problematic for two main reasons. First, they base regulation on title rather than function. Second, these provisions rarely define what is meant by either "financial planner" or "holding out." The end result is that individuals who are not performing any activities that fall under the authority of the regulator may be subject to regulation.

Holding-out provisions have caused special problems for life insurance agents who have earned a professional designation such as Chartered Financial Consultant (ChFC). The designation is evidence of education, not of business activities. However, if the state regulators take the position that use of the designation is "holding out," then the individual will be required to register as an investment adviser.

In light of the complicated approach to financial planning regulation, ChFCs should review the following to ensure compliance: